In March 2016 KPMG published the results of its survey of the competitiveness of the UK tax regime. For the UK’s largest companies, a key conclusion was that their perception of a country’s tax competitiveness depends on the regime’s predictability and simplicity. Companies value stability over the long term and advanced warning of major changes.
The Government’s Business Tax Road map published in March 2016, contained a summary of recent changes; its stated aim is to give businesses the certainty they need to plan and make long term investments. One of the principles underlying future reform is lowering tax rates whilst maintaining the tax base. The latter to be achieved by tackling evasion and aggressive tax avoidance.
To stimulate economic growth in the UK, the Government has maintained consistently low rates of corporation tax (reducing to 17% by 2020) and generous tax reliefs. For example using tax incentives to encourage investment in high value research in the UK through R&D tax credits and the Patent Box. The OECD consultation on Base Erosion and Profit Shifting (‘BEPS’) also gives a clear direction on global tax policy over the years ahead.
As a result, although they generally prefer less change and more advance warning, businesses are, to a certain degree, able to plan for the future and the Government’s intention is to make the UK a fiscally attractive place to do business.
In contrast, the position for personal taxes is often contradictory and lacks a clear direction. Without a strategy, personal tax policy changes appear to be reactionary to particular issues rather than a planned approach to the wider structural questions around income generation and personal wealth. But we need a plan because there are major issues to be addressed.
Take for example pensions. By their nature, plans for the provision of funds needed in retirement require a long term consistent approach. The restrictions on personal pension relief for high earners now make long term saving less attractive. The solution for many has been purchasing buy to let property, but this is now also being penalised and itself subject to increases in tax costs to discourage this type of investment.
The numerous tax changes aimed at UK residential property have resulted in no clear policy message. Initially the aim was to discourage ownership via corporate structures with the introduction of the Annual Tax on Enveloped Dwellings (or ATED). However shortly after these changes were introduced, another new rule was announced restricting the tax deduction for interest costs for direct holdings of UK residential property, but not for property owned via a corporate structure, thereby seemingly encouraging holding of such property via a company.
Whatever the solution, a plan is needed so that the UK remains an attractive and stable fiscal environment for business owners as well as the businesses themselves.
Individuals are identifying and confirming their long term commercial and family objectives then implementing strategies, with tax recognised as one part of the cost and cash flow equations. Taking into account the prevailing direction of travel of the personal tax rules, they are choosing options that maintain some flexibility.
For further information about KPMG’s competitiveness survey visit The home for business?
Nick Pheasey Partner, Private Client
Sally Morgan-Owen Senior Manager, Private Client